Casino Analyst Bullish On Vegas, But Not Macau

Casino stocks are off to a hot start in 2019.

While Credit Suisse analyst Cameron McKnight said the outlook for Las Vegas is bullish, the analyst said in a Friday note that the Macau market may be much more difficult in coming quarters.

Las Vegas Booming

McKnight said he is positive on the U.S. regional market and the Las Vegas Strip given the following four factors:

• Credit Suisse is forecasting strong hotel bookings in the first half of 2019.
• The weakness in Q3 of 2018 was an outlier, not the beginning of a new trend.
• Macroeconomic conditions in the U.S. are bullish for the gambling market.
• Activists and corporate interest should limit downside.

McKnight said 10-percent growth in room rates in Vegas is a possibility in the first half of 2019, and large conference attendance is expected to be up 12 percent in the next six months.

Unemployment levels are historically low, corporate profit growth is driving more special events and household income is on the rise, the analyst said — all good news for Vegas casinos.

Macau Headwinds

Across the Pacific Ocean in Macau, the situation is a bit less rosy, McKnight said. 

In addition to fears over slowing economic growth in China due to the ongoing trade war, McKnight said revenues in Macau will likely be flat in 2019 and 2020.

“While stocks are trading at or near trough multiples, they’ve typically bottomed on trough estimates too — and we see limited visibility of revenue cadence." 

Investors should expect gaming revenue growth to bounce back to positive 10 percent in February after logging its first monthly drop in more than two years in January, according to Credit Suisse. 

Stock Ratings

Credit Suisse has a Buy rating for Caesars Entertainment Corporation CZR, which has a large presence in Las Vegas but no exposure to Macau.

The firm has Hold ratings on Wynn Resorts, Limited WYNN, Las Vegas Sands Corp. LVS and MGM Resorts International MGM, all of which have properties in Macau.

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